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Spitznagel & Taleb On Inequality, Free Markets, & Inevitable Crashes
Originally posted at The National Review,
Inequality, Free Markets, and Crashes
Nassim Taleb and Mark Spitznagel talk about how government intervention postpones the inevitable.
By Nassim Taleb & Mark Spitznagel
Mark Spitznagel and Nassim Taleb started the first equity tail-hedging firm in 1999. Since then these two friends and colleagues have helped popularize so-called “black swan” investing, with Spitznagel as the founder and CIO of hedge fund Universa Investments and Taleb as an academic and author of The Black Swan. The two men recently sat down to discuss Spitznagel’s new book, The Dao of Capital, as well as their reactions to and criticisms of Thomas Piketty’s book. Here is a transcript of their conversation:
Nassim Taleb: Mark, your book is the only place that understands crashes as natural equalizers. In the context of today’s raging debates on inequality, do you believe that the natural mechanism of bringing equality — or, at the least, the weakening of the privileged — is via crashes?
Mark Spitznagel: Well straight away let’s ask ourselves: Are we really seeking realized financial equality? How can we ever know what is the natural or acceptable level of inequality, and why is it even the rule of the majority to determine that? That aside, one can absolutely say logically and empirically that asset-market crashes diminish inequality. They are a natural mechanism for this, and a cathartic response to central banks’ manipulation of interest rates and resulting asset-market inflation, as well as other government bailouts, that so amplify inequality in the first place. So crashes are capitalism’s homeostatic mechanism at work to right a distorted system. We are in this ridiculous situation where utopian government policies meant to lessen inequality are a reaction to the consequences of other government policies — a round trip of market distortion. After we’ve been run over by a car, the assumed best treatment is to back the car over us again.
Taleb: I see you are distinguishing between equality of outcome and equality of process. Actually one can argue that the system should ensure downward mobility, something much more important than upward one. The statist French system has no downward mobility for the elite. In natural settings, the rich are more fragile than the middle class and we need the system to maintain it.
The reason I am discussing that here is linked to your book, The Dao of Capital, which mixes (rather, unifies) personal risk-taking with explanations of global phenomena. But as an author I hate people’s summaries of my work. Can you provide your own summary in a paragraph?
Spitznagel: To your first point, yes exactly, and in fact what’s hidden beneath all the aggregate income-inequality data is much cross-sectional downward mobility, in that most people in the right tail of income spend very little time there. The transience of success is assured by natural entrepreneurial capitalism, and is precisely what works about it: unseating the top, driving out the lucky and unworthy. Without this dynamic, capitalism doesn’t work. It isn’t even capitalism, but rather oligarchic central planning. Yet modern government chips away at this dynamic in so many ways, most significantly by providing floors and safety nets to crony bankers and other financial punters. What irony that the same people who today loudly endorse a global wealth tax to rein in inequality were also the very ones saying guys like us were nuts for opposing the bailouts back in 2008!
That we so casually ignore the implications of this goes to the main point of my book: In the words of Bastiat, we pursue a small present good which will be followed by a great evil to come, rather than a great good to come at the risk of a small present evil. The latter is what I call roundaboutness, which is central to strategic decision making, especially investing. It is about counter-intuitively heading right in order to better go left, or taking small losses now — and willingly looking like an idiot — to build a strategic advantage for later.
In Daoism it is wei wuwei or shi. In economics it is Robinson Crusoe, who starves himself by not spending all his time fishing by hand and instead spends time making a boat and net, in order to catch many more fish later. We have roundaboutness to thank for civilization itself. Yet it is so difficult because of our myopic brain, and in most modern instances downright impossible because of our myopic social structures — Washington and Wall Street being the best examples, where to disappoint in the present means there is no future, so why be concerned with the future? Of course exploiting this is what we do as investors. Looking at markets in this way, specifically how they scorn the roundabout — thanks in no small part to the Federal Reserve — is to understand them better, particularly the traps that they set.
Taleb: Did you consider simple remedies such as decentralization?
Spitznagel: When you understand the problem of centralized power in general, then the specific problem of central banking is just a particular example. What more centralized economic authority is there than the manipulation of money? And this feeds into greater and greater centralized authority. Bureaucrats and politicians, for the same reasons as Wall Street traders, are necessarily anti-roundabout. Decentralization dissipates their influence and limits their reach. Small localized majorities can do just as stupid and myopic things as broad majorities, but their coercion is escapable and weaker, and they can transparently fail and try again. (James Madison didn’t get this.) With public decentralization naturally comes private decentralization as, without public intervention, the bigger and broader the private bungle the more likely the disappearance of the bungler.
Taleb: I agree, but we need a “negative state” for law enforcement, something like the U.S. federal state or the traditional empire during Pax Romana or Pax Ottomana. In this idea the role of the state is protection, not to promote education or, say, corn fructose, which we know have worse adverse consequences when coming top-down from a powerful centralizer and, hence, implemented at a large scale. In my work the central mission of the state is to protect the environment, to shield me from irreversible harm done to my backyard by people who don’t have skin in the game and are protected by limited liability. There are things that can be done by the state, and only the central state. Do you agree?
Spitznagel: I definitely agree that the only conception of the state that makes any sense is the “night watchman” variety, which exists only to enforce the rules of the game rather than trying to pick the winners and losers (whether it’s financial institutions or monoculture crops). There is a deep tradition in classical liberalism and modern libertarianism that stresses the importance of limiting government action to the defense of life and limb — a defense of “negative liberty” — rather than the “positive” conception where it is the job of the government to promote literacy, full employment, equality, and so forth. Even protecting the environment falls under this “negative liberty” — pollution should really be seen as an aggression against property (as in one’s lungs, for instance). Even as recently as the 19th century pollution was a tort, suable for damages and to cease and desist. Then the law morphed to permit what was considered non-anomalous polluting. Ironically, it was paternalistic state oversight that trumped the decentralized and allegedly myopic common-law tradition — where an individual household could “halt progress” by bringing an injunction against the factory upstream that is dumping chemicals into the river. The rights of small property owners were set aside in the quest for industrial growth.
In any event, your approach of asking the state — the ultimate agency that lacks skin in the game (central banks being the greatest example) — to protect us from those lacking skin in the game is asking a lot of it.
How do you justify your generalized skin-in-the-game criterion with the observation that many of history’s greatest calamities — from military to financial — have basically been done at the hands of those whose skin was very much in the game? For example, we can’t blame the inadequacy of the Maginot Line and other French defenses on the lack of skin in the game; presumably the French officials responsible for these blunders suffered very great personal distress from the German invasion. And then there’s the crazy Nazi leaders, all of whom had an enormous stake in the outcome of their decisions. Certainly in finance, many a blow-up ruined those responsible.
Taleb: The skin-in-the-game idea, or what I now call the silver rule, i.e., the negative golden rule, is necessary but not sufficient. And it is not literal, as it can be gamed.
Talking about the silver rule, I feel that the clique of academic economists and people who spent too much time without contact with reality via risk-taking (that’s the main epistemological benefit of skin in the hogame), these people are now engaging in the politics of envy. The real class war we have isn’t what Marx thought it was, between the proletariat and the owners of capital. It is between the policy-makers-bureaucrats-with-no-skin-in-the-game who want to tax the rich to increase their power and the other classes. Historically, we have known since the Romans that the enemies of the people were the senatorial class, not the emperor. Bureaucracies are metastatic. Those economically in the bottom half are not interested in the rich getting poorer, they want a better life and hope to rise should they want to. And economists can come up with any economic theory that fits them. They can embrace any narrative-with-data that increases their role.
Having seen economists with data-mined theories blow up left and right, what do you think of Piketty’s book, Capital in the Twenty-First Century, and how do you compare it with yours?
Spitznagel: Well, while some have recently and rightfully criticized Piketty’s cherry-picked data and other empirical defects, to me his principal problems are conceptual — specifically his reliance on a very fast-and-loose model of what capital is and how it contributes to the economy. In his book, he switches back and forth between two distinct meanings for “capital”: Sometimes it’s an indiscriminate blob of concrete physical things — machinery, tools, acres of farmland — and other times it’s a sum of money. He then relies on a very crude model in which the stock of capital combines with the stock of labor to yield a blob of output, which is divided among the two classes according to a few parameters. With this confused structure and some historical trends, Piketty forecasts that the owners of “capital” will grow increasingly dominant, hence his call for a punitive tax on wealth for those with the most.
There are several problems with this approach. First and most basic, by constantly flipping back and forth between his concepts of capital, Piketty falls prey to crude, basic fallacies that have long ago been dismissed. The Austrian economist Böhm-Bawerk picked them apart in the late 1800s! In particular, Böhm-Bawerk showed that the physical productivity of a capital good can explain its rental price — how many dollars it earns per hour of hire — but has nothing directly to do with the rate of return the capitalist earns by investing in the physical-capital good. (This objection isn’t unique to the free-market Austrians, but is even embraced by post-Keynesians today.) Another major problem, of course, is the sheer envy underlying the whole enterprise. So what if capitalists enjoy a growing share of “total income”? The more tools and equipment that the workers have to augment their labor power, the higher real wages will be in absolute terms. Even if Piketty’s diagnosis were correct, his solution would hurt workers and capitalists alike.
Most severe of all is that his very cartoonish and academic concept of capital just doesn’t allow for the monetary distortions and consequent booms and busts we’ve seen. It takes a richer framework than Piketty’s to show how this works. His theorizing blinds him to the most obvious empirical relationship in his own data: his historical high-inequality periods perfectly coincide with the two greatest monetary-induced-bubble and crony-capitalism periods — 1929 and now.
As for my book, I deal with the world largely shaped by Piketty’s same naïve concept of capital. By manipulating interest rates, central planners magically appear to manipulate capital’s profitability, and hence all the many moving parts and agents of the economy are but another tool to create the economy that they want. Of course, the world just isn’t that clean and simple. When we look back at Böhm-Bawerk’s notion of Produktionsumweg (or “roundabout production,” the essence of economic growth), we can recognize how far modern economics has now strayed from the multidimensional complexities of reality. Economics and investing have become games of cavalier manipulation and side bets on direct ends rather than what they should be: disciplines of understanding (what Mises called Verstehen) and building productive means. So I think it is very important to change our perception of these things. For me, this mostly happened in my youthful pit-trading days — a formative experience you and I share in common. As I address in my book, investors who understand the dynamics of economic distortions are far better at profiting from them.
Taleb: Let’s generalize from the Piketty into the “macro BS” problem. I started as a foreign-exchange option trader. Thirty years ago economists believed that “purchasing power parity” determined the “long term” currency rate between countries. And economists who became traders kept blowing up by selling the “expensive” currency and buying the “cheap” one. And, if anything, the opposite held: Currencies that were expensive kept getting more expensive. So it became known that the fastest road to bankruptcy in foreign exchange was an economics degree. More analytically, saying “the long term” without attaching a period to it (six months, six years, six hundred years, etc.) is meaningless. The duration is more relevant than the idea that currencies “converge.”
In the Piketty case, the argument that the rate of growth and that of the return on capital ought to be equal “in the long term” is very similar. Except that, in addition, Piketty forgot to make them stochastic, which would skew the return on capital by adding a small probability of ruin “Black Swan”-style that would annihilate capital in the long run.
Which bring me to silver rule (skin-in-the-game) problem. Every person who has skin in the game knows sort of what is bullsh** and what is not, since our capacities to rationalize — and those of bureaucrats and economists — are way too narrow for the complexity of the world we face, with its complex interactions. And survival is a stamp of statistical validity, not rationalization. This, in short, is why we are now talking about your book, because a book with “skin” is a different animal. So tell us about your idea of an impending “fixing” of the system, so to speak — how reality will resolve the current contradictions.
Spitznagel: I see the whole “r>g” [meaning return on capital is greater than the rate of growth] thing as taking bubble observations and rationalizing their extrapolation forever, thus simultaneously neglecting both the incidence of asset bubbles and what’s so bad about them. Such enormous shortsighted errors follow from the noisy duration of the “long term.” And exploiting these errors is the name of the game. In everyone’s scorn of the roundabout lies its greatest edge.
The main metaphor of my book is the “Yellowstone effect”: A massive fire in Yellowstone Park in 1988 opened the eyes of foresters to the fact that a century of wildfire-suppression, and with it competition- and turnover-suppression, had only delayed, concentrated, and by far worsened the destruction — not prevented it. This isn’t just about dead-wood accumulation creating a fragile tinderbox network. The real issue is how our tinkering artificially short-circuits the fundamental capacity of the system to allocate its limited resources, correct its errors, and find its own balance through the internal communication of information that no forestry manager could ever possibly possess. (The more this is mocked by technocratic naïfs like Geithner, the more valid it is.) But that capacity is still there, and homeostasis ultimately wins through a raging inferno. This is a cautionary tale for our economy. A crash, or the liquidation of assets that have grown unimpeded by economic reality (as if there were more nutrients in the ecosystem than there actually are), looks to academics and bureaucrats — and just about everyone else as well — like the system breaking down. It is actually the system fixing itself.
Taleb: Let us each conclude here. For my part, I would say three things.
First that intervention — in general, whether medical, governmental, or other — has side effects and needs to be treated exactly as we do with other complex systems: only when extremely necessary.
Second, counter to naïve conservatism, nature is not conservative, it destroys and creates species every day, but it does so in a certain pattern: Its destruction has the effect of isolating the system from large-scale harm. It does not try to preserve the past; it only tries to preserve the system.
Finally, liberty is not an economic good, but an existential one. The economic good is a mere bonus. The argument that liberty is good for economic activity or for growth of the system feels lowly and commercial (an argument used by consequentialists). If you were a wild animal, would you elect to be in a zoo because the economy is better over there than in the wild? Liberty is my raison d’être.
Spitznagel: Yes. The Daoist scholar Zhuangzi once said, upon being offered the prime ministership about 2,500 years ago, “Would the dead and adorned turtle in the king’s palace not prefer to be alive and free in the mud? So too would I.”
Here’s how I would reconcile my own position with yours: I agree that liberty is an end in itself, and is not to be valued merely as an instrumental means to something else. But precisely because of that, even if hypothetically you could convince me that a certain government intervention in the market were extremely necessary, as you say — for instance, would likely lead to greater economic growth or lower unemployment — I would still reject it on principle, because my support for property rights and a sphere of individual autonomy free from political meddling is not ultimately based on a utilitarian criterion. By all means, let’s brainstorm and see if there are ways to alleviate these problems and provide relief to the suffering. But any proposal that involves using coercion on unwilling citizens should be off the table. Anything else is a slippery slope to what we have today from these serial crises. To say this by no means demonstrates that I’m an ideologue or unscientific.
What we get from this is a self-organization that often seems chaotic to our myopic eye, yet when we take a step back we can see how the ecosystem ultimately and optimally steers itself. It was Zhuangzi, as I discuss in my book, who first articulated this idea of spontaneous order — whereby order naturally emerges from bottom-up individual interactions when things are left alone rather than from top-down control — a concept developed later by Menger and Hayek. We live in an economic age where we’ve simply lost our ability to look at the world in this way, though I suspect we’ll be reminded of it again sooner rather than later. Perhaps our takeaway from economic crises will finally be different the next time around.
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"What irony that the same people who today loudly endorse a global wealth tax to rein in inequality were also the very ones saying guys like us were nuts for opposing the bailouts back in 2008!"
These guys have a lot of smart things to say, but this isn't one of them. Almost all Americans were against the bank bailouts. Congress did it anyway. Now there are high profile assholes like Krugman who purport to speak for "liberals" or whatever other team is supposed to represent the cause against oligarchs, and who see the concentration of wealth among a few thousand people as endangering our very existence as a society. The fact is that most Americans knew that the bailouts were a give-away to the very top. The rest is propaganda.
Nice to see people with well-known names bring up the C-word: Coercion.
Even children use coercion. Playground bullies etc. Human nature is what it is. Most of us are not sociopaths, but sociopaths have a way of ruining otherwise well designed systems for sharing the playground. If we decided that sharing is bad and we all just decided to build our own playgrounds, you can be assured that some sociopath would decide that he wants yours.
I guess when its framed as a "public playground" all's well then. As long as the bully doesn't push my kid off the slide in my own backyard everythings cool.
But thats not how it works.
So you're an anarchist now?
CH1 is an anarchist. I am pointing out how anarchy works in practice.
CH1 is an anarchist.
All the cool kids are doing it!
And chicks dig it. :)
I really get where you are coming from and sometimes I go there. My whole issue is that the sociopaths would ruin a world without checks and balances. As flawed as our system is, I think it could be fixed if we could ever figure out a way to take oligarch money out of politics and have regular people elected to represent us. Limited government of the people by the people. That's the answer in my view.
As far as chicks digging your point of view, have you considered that it may be the ape gerth?
I definitely agree that the only conception of the state that makes any sense is the “night watchman” variety, which exists only to enforce the rules of the game rather than trying to pick the winners and losers (whether it’s financial institutions or monoculture crops). There is a deep tradition in classical liberalism and modern libertarianism that stresses the importance of limiting government action to the defense of life and limb — a defense of “negative liberty” — rather than the “positive”
This should be taght in every class room in America, every year.
Enough Soviet Socialist armed robbery for god's sake.
Couldn't agree more. The night watchman metaphor is brilliant.
"Even children use coercion."
Children are still animals and so are most adults.
Being human is where man is headed, not where he is.
The Soviet's schools will teach anti-sovietisms?
Good luck with thar.
How in the cornbread hell do I still get double posts now and then?
Possession by demons of the interweb???
The existence of sociopaths and bad actors must be stipulated in any conversation about optimal governance - there can be no provision for the future which guarantees that bad actors will not gain control of the mechanisms of government. Instead, our systems must be designed to survive the presence of these bad actors.
This is precisely why the 'night watchman' concept of government is so critical. The threat posed by bad actors as leaders is in direct proportion to how much centralized control the government has accumulated, and that they can then wield. The only way to protect ourselves from these kinds of leaders is to greatly limit government, and therefore their ability to intervene in our lives.
If the vast majority of wealth and power were in decentralized, private hands in the U.S. today, the disagreeable actions of a much-diminished federal government would be far less consequential. By the same token, bad actors in the private sector would be greatly limited in the ability to alter the landscape in their favor through the purchase of influence.
Better, it seems, that some of these powers be vested at the state versus federal level, where the scope of government impact is limited geographically, and the connection between voter and government that drives policy is a local one.
God you're stupid.
The sociopaths become the checks and balances and they always act in their own self-interest.
It's like expecting cancer cells to behave like immune cells to control cancer.
The problem is " regular" people have no attraction for elected government positions. It appears only in the early stages of this country did this appear to be the case. Only narcissistic sociopaths have a strong desire to impose their will on others. Therefore, they flock to government to satisfy their natural power hungry nature. Anyone wanting to " represent" the people today is suspect by default.
I'm afraid you'd do better to find a quality individual and force him to do the job under gun point. No, I myself would not consider it and would take the bullet. Unless it's a dictatorship and then, at some point as history has shown, the bullet would be necessary.
Miffed;-)
Regular people don't seek authority over the masses, only sociopaths do. Until you recognise this, you will always presume "limited government" to be slightly more pragmatic than anarchism and not 'tuther way round.
Hitler, Mao, Stalin, Lenin, Obummer and the rest are evidence that a state does not restrict the playground bully, it just expands their playground.
Isn't the whole idea of checks and balances made moot by the very fact that governments constitute a monopoly within the borders they claim? As it was conceived in the constitution, the US gov started as a monopoly on juridical and defense services. Even with checks and balances, the moral hazard presented by a monopoly on those two functions has led us to where we are - further consolidation of power and the eventual removal of checks and balances by legal means. It seems to me that trying to "figure out a way to take oligarch money out of politics and have regular people elected to represent us" is at least as utopian as the marxist dream. A limited government of the people by the people has already failed, and spectacularly so. Suggesting that government can be limited by the population it claims to represent ignores history and human nature.
My understanding of anarchy is that it doesn't remove checks and balances, rather it seeks to remove the monopoly in all its forms and allow for market competition to perform the checks and balances that it always has. Only with regulatory capture and corporate control of government can a monopoly exist for any extended period of time.
You are right though, sociopaths will always try to gain advantage through coercion, so then the choice might be between a tyrany of the leviathan vs. a tyrany of occasional imps. I'll take the imps.
lol...in an age where, the state monitors your every word, tabulates every penny earned, fines, taxes & fee's it's own servants into luxurious pension retirement...anarchy would be a problem?
It's not an either/or. That's where we always seem to disagree.
Its either or...now Rand.
I've seen your interpretation of law and of society, you're too gullible. Its not that I won't help those in need but I recoil when someone sticks a gun in my face and pronounces they deem someone is in need and I will give it up or go to jail after they placed them in that situation in the first place.
My first inclination is to kill both of them, the guy with the gun and the guy egging him on to steal from me.
Does that make me a sociopath?
Yes. You bought the gun at a store. The store had the gun in inventory (even if our NSA society) because some trucker took it there from a warehouse on a public road and he wasn't hijacked. The store is protected by police. You drove to the store on a public road. You paid for it with currency. If 10 guys show up to take your gun, you call the cops. It's called normalcy bias. It's easy to be a faux tough guy when you have a functioning society and there aren't gangs at your door better armed than you.
No, I don't buy my guns at stores, I let others buy guns at stores, pay insane taxes and go through background checks (as much as that probably distresses you) to avail myself of my rights.
And yes, I paid them with the "Kings Currency" knowing that its decaying value is a better deal for me than what I could have paid them with and yes MY FUEL TAXES paid for a PRIVATE CONTRACTOR to construct that road...after government handling & fees.
Anything else, besides the ten dead tough guys laying outside my front door being eaten by my dogs?
"Anything else, besides the ten dead tough guys laying outside my front door being eaten by my dogs?"
Okay, tough guy.
Ok what?
You would call 911 instead of protect yourself and your family?
If I had ten guys with machine guns outside I would sure as fuck call 911. And I would defend as best I could until they got there. Not an either/or. But then again I'm not Rambo, like you are apparently.
Do you even know what a "machine gun" is? What it takes to buy one legally? What type of individual can own one, legally? The costs involved? Isn't your government supposed to "regulate" those things?
How could Rambo ever own one and yet 10 guys show up at my front door with them? ;-)
If you are not involved in the criminal underworld (the underworld created by the illogical and immoral legislation of the state), then there is a 99.99% chance those machine gun toting guys outside your door are the police! You didn't happen to buy any raw milk recently, smoked a harmless plant or maybe just eluded any of the state-enforced monopolies lately?
The other 0.01% I will give to the marauding dystopian gangs scenario you and many statists envision so often.
A rational person would do both.
I once asked Mr miffed why I had to buy my 6 guns at the gun store, go though all the finger printing, background checks , wait periods and stupid Cali magazine requirements. I was sick and tired of all the hassle. All his purchases are private. " Your my decoy sweetie" was his response.
Miffed;-)
So you believe that roads can only be provided by government?
And only government can provide security?
And money?
You are so simple-minded.
Around here the ten guys kicking doors, throwing flash bang stun granades into baby cribs are the police.
NY City, and most suburban trolly light rail was private owned, finaced and built.
Highways are user financed via gas tax. Management, repair should be privatized. But try breaking the union, big contractor, politician triangle.
Yes. You bought the gun at a store. The store had the gun in inventory (even if our NSA society) because some trucker took it there from a warehouse on a public road and he wasn't hijacked. The store is protected by police. You drove to the store on a public road. You paid for it with currency. If 10 guys show up to take your gun, you call the cops. It's called normalcy bias. It's easy to be a faux tough guy when you have a functioning society and there aren't gangs at your door better armed than you.
Let's unpack this, shall we?
You bought the gun at a store.
stores don't need BigGov
The store had the gun in inventory (even if our NSA society) because some trucker took it there
truckers don't need BigGov
from a warehouse
warehouses don't need BigGov
on a public road
OK, as a geolibertarian I agree natural resources are a 'commons', and furthermore not really open to competition. (If you, dear reader, doubt this, imagine roads are private and some entity bought up the roads around your neighbourhood and then started to charge extortionate tolls to use them). So you can make an argument roads require government. But roads exsted long before social welfare... so, no, roads don't need BigGov either.
and he wasn't hijacked
He may well get hijacked even with BigGov, but I agree he's less likely to if there's a decent police force... who - preferably - aren't out throwing people into cages for ingesting the 'wrong' kind of plant. But police exsted long before social welfare... so, no, police don't need BigGov either.
The store is protected by police. You drove to the store on a public road.
See above
You paid for it with currency.
You've been on ZH how long and you make a mistake like that? Jesus LTER, frankly, that's fucking shocking: you think we need government for our currency? Don't you take in ANY of the monetary stuff posted here?
If 10 guys show up to take your gun, you call the cops... It's easy to be a faux tough guy when you have a functioning society etc
All your examples have established is that we need a minimum government... not, as nmewn points out, a bunch of people who can legally shove a gun in our face and demand we give them money so they can hand it over to people who vote them into power expressly because they promise to do just that... all the while diverting resources from what they're supposed to be doing.
Roads can easily be paid for with land, gasoline, and vehicle taxes. Police, courts, & prisons can be paid out of local land taxes and the locals can decide what they'd like the police to devote their time to (you can bet it won't be arresting pot smokers). In return for paying land taxes, land 'owners' get legal right to monopolise the land they pay for.
CH1 is an anarchist until his team is the winning team.
Same as it ever was.
CH1: Your too kind, we call it RACKETEERING
http://www.cga.ct.gov/2006/rpt/2006-R-0484.htm
These fucking mutts will end up in prison. Bank on it!
The government is doing everything it can to negate free market forces. The mass printing of fiat money being felt around the world is greatly distorting economies. The only safe haven left is precious metals, which they are actively attacking. Eventually we will win the day.
Keep Stacking!
You're actually stating their point. Congress (let's broaden that and say politicians because although it was a Congressional vote there were a lot more folks involved than the House and Senate) did go thru with bailouts, and politicians are the ones currently rumbling about inequality (Krugman is just a talking head, he has little influence just a big mouth and a column at the NYT). You and I and the general population were/are against both of these wealth grabs, but who cares what you and I think? Spitznagel and Taleb are talking about those who have decision making power, not about the general population who have little or no ability to impact anything.
If they got anything wrong it was in using the word "Irony". Both bailouts and wealth taxes are premeditated theft, and there is nothing ironic about how the elite class uses them for control purposes.
See
http://andreswhy.blogspot.com/2014/03/gini-and-rubble-of-empire.html
4.Some corollaries : If GINI smaller than 0.28 , instability ensues . Insufficient reserves. Usually collapse . Cities deserted as the good citizens just walk away . ( See http://andreswhy.blogspot.com/2014/01/evanescence-of-cities.html ) . Or the collapse of the USSR . See http://www.roiw.org/1993/23.pdf The 1989 Gini of USSR = 0.275 . It shouldn’t have led to collapse , but they were in an arms-race with USA . Insufficient reserves . The system went into shock and collapsed . If GINI bigger than 0.38 , instability ensues . Too much reserves in too few hands . Usually revolution . See Arab Spring , Syria , Occupy Wall st , etc etc .Or any peasant rebellion in history , a-la-France or Russia . 5.Where are we now 2014 ? Every country with a Gini bigger than 0.38 and social media access is a revolution waiting to happen .Countries with Gini smaller than 0.28 have to be propped up .
LOL, Greece @ .33 in 2005.
Get your head out, and read/understand this:
The Public Be Suckered
http://patrick.net/forum/?p=1230886
Humanity is analog. Everything you see is analog. Space and time are analog.
Super fast images are analog. This NSA crap is stillborn, and obsolete in the box.
Th scumbag that authorizes it's use against people isn't!
Ask the bullies to provide protection against bullying....uh huh sure.
Instant classic.
Thanks Tylers.
There is a lot that is correct in what they say, but at the end of the day .... so what? The equity markets in the US continue to rise on bad economic and global news, the employment and business cycle statistics keep being doctored to show that everything is just peachy when huge amounts of labor sits idle, and the world keeps racing towards the abyss that I've heard talk of for the past 5 years (or 15 or 25 or 35 or 45, ad infinitum). I think the world of Nassim Taleb and try to take his insight into account in how I handle my assets, but this tells me nothing more about our current condition than has been obvious to even the casual reader for quite some while. Now if they could tell me when the whole calliope comes crashing down, then they've actually told me something. Because until an author puts in a realistic description of the state of things and things to come and then BACKS IT UP with a timetable, then I'll keep reminding myself of what Keynes said:
"The markets can remain irrational longer than you can remain solvent."
The government of my government is my enemy.
From the concept of Occam's razor, this discussion complicates a simple argument to prove a point.
Through the length of the entire article, not one mention of Glass-Steagall's removal or the advent of the CFMA's affect on markets by allowing large trading entities to control input costs & earnings (via futures) of whole sectors in total secrecy.
Is this natural price discovery?..a Free market?
Pure coincidence that TBTF prop desks are profitable every single day?
As for the bailouts, had Geitner bailed out homeowners instead of the criminal perpetrators, we'd be in FAR better shape in terms of wealth equality.
In retrospect, seeking fiscal rebalance from the TBTF's and their eight figured executives while favoring regionals and small businesses, seems like a decent idea, call it a "government takeover" if you must, but the TBTF's aren't going to relinquish their power via the status quo.
Nor is a government that's governed by the TBTF's.
I don't see this as a regulatory problem per se, so much as who controls the regulations.
There are corrupt police in the department, does that mean we close the whole department?
Again, The government of my government is my enemy.
Divorce central banking from crony capitalism.
End the central banks and outlaw investment banks and bailouts.
The markets don't function because central banks backstop the gambling of investment banks.
If the investment banks and their leveraged bets in corporations/insurers lose - they are given more chips by the central banks from the public coffers.
If the dysfunctional enabling relationship between central banks and the financial engineering gambling addicted investment banks isn't sundered - the public treasuries and taxpayers will continue to be pilfered - regulations or naught.
While I agree that the Fed is tantamount to privatized governance in it's own rite, specifically where TBTF's comprise the board, I stand by my comments above regarding removing Glass Steagall and the CFMA and their effect on this farce of a "free market".
As long as banks are allowed to buy limitless quantities of futures & derivatives in secrecy without position limits, they own us.
They control input costs for any sector, in turn, they control earnings and know in advance whether a sector will soar or crash.
For every winning trade, there is a loser, which begs the question - if TBTF prop desks are constantly profitable 100% of the time - Who's been the losing trade the whole time?
I applaud the need to reform the Fed, but I think sole focus on the Fed is a dangerously short-sighted idea right now.
Start with CFTC position limits, onus for that falls on Congress/Senate/POTUS allowing the banking lobby to circumvent position limits.
Before that, the level of control money has on Congress/Senate, SCOTUS and POTUS is the greater issue, while it's the TBTF cartel now, with SuperPAC anonymity, it's a matter of time before Communist or Muslim extremist interests excercise their "free speech".
If they aren't already.
That's not true. Fed buys from winners like banks cashing out.....think about it
The Fed is a boogeyman, sure, but it's NOT the only boogeyman, nor is it the worst.
Relative to my point, the FED isn't responsible for removing Glass-Steagall and creating the CFMA that is causal to the single biggest transfer of stolen wealth in U.S. history.
Look to Potus, Congress & Senate for that.
You missed my point entirely, I see a lot of sureness that focusing solely on the Fed is all that need be done.
That assumption is dangerously short sighted, it serves to distract from the greater danger of bribed government, or, as Antonin Scalia calls it - "free speech".
The people manipulating the congress are largely the same TBTF elites who have the Fed as their private clubhouse.
Yep, and going after the Fed alone doesn't stop that.
Speaking of wealth inequality, nothing could be worse than someone caught between the rock of giant top down centralized government and the hard place of Austrian economic theory. Thanks a fuckin lot bitchez...for maintaining the status quo.
It is either one or the other, not some "happy medium" between the two. I am very disappointed in the twoayas.
The use of the term watchman is worth considering as it relates to George Orwell's wise admonition (uttered in the form of a question) "Who will watch the watchers?" And that quote is but the offspring of one of Thomas Jefferson's great insights that "The Price of Libery is Eternal Vigilance." Jefferson was also the visionary who observed that "The best government is that which governs least." All this by way of saying that the greatest challenges where constructing and running a government are concerned have long since been identified.
Alas, we may be at a point in time when another of Jefferson's insights, "From time to time, the tree of liberty must be watered with the blood of tyrants." is an unavoidable next step.
SOLAR FRICKING ROADWAYS!
WATCH THIS BITCHEZ!!!!
https://www.youtube.com/watch?v=NvdGmUYLkDo
Too much silly talk about "envy." A growing number people hate the 1%, rather than envy them. They want to destroy the 1%, not replace them.
In talking about "class war," Taleb fails to understand that global capitalism, in Marxist terms, is still immature. On a global level, classes are consolidating. There are still many unresolved contradictions between national and global bourgeoisies (e.g. conflict between Russian oligarchs and globalists of the Western Bloc).
There are also contradictions within the nascent global proletariat. These contradictions are often overlooked by leftist analysts. e.g. European and American proles are often opposed to fellow proletarians on immigration issues, etc. This happens because global capitalism has not yet matured.
Immature or not, on a global scale, Marx has never looked smarter than he does now, in our time. The division between a worldwide capitalist bourgeoisie and a global labouring proletariat is pretty unmistakeable, to anybody who can look past the end of his own nose.
"The division between a worldwide capitalist bourgeoisie and a global labouring proletariat is pretty unmistakeable, to anybody who can look past the end of his own nose."
Far as I'm concerned, this is a false dichotomy. I see it as four divisions, not two.
they are:
Workers
Industrialists
Financiers
Government (formerly monarchy)
Workers and industrialists are natural allies. Workers buy the products of industrialists with the wages paid by industry. It's a symbiotic relationship that supports both when not interfered with.
Finance and government interfere with that relationship, the first in search of rent, the second in search of power.
There's movement back and forth between Finance and Government, whereas movement in the Worker/Industrialist nexus tends in one direction only: workers become industrialists. They move up within the organization, or form new ones. There's a natural advantage inherent in this process, which is why both Finance and Government work together to subvert it.
That's where my analysis would begin, and I'd discard the terms Proletariat and Bourgeoisie as obsolete, no longer workable.
That is the state of 'american' intellectualism: minds whose urge is to please and flatter their master, those who they want to seduce: the 'american' middle class. It usually leads to tons of fixing.
This piece is such an example.
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In natural settings, the rich are more fragile than the middle class and we need the system to maintain it.
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This comment rest on nothing but the knowledge that the 'american' middle class aka the King class is obsessed with retaining their status. The 'american' middle class cant conceive being demoted from their middle class status.
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In Daoism it is wei wuwei or shi. In economics it is Robinson Crusoe, who starves himself by not spending all his time fishing by hand and instead spends time making a boat and net, in order to catch many more fish later.
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Funny how 'americans' can refer to natural settings and then declare to base their line of thought on tales.
Crusoe starved himself to make a fish and a boat? And to achieve what? Fishing many more fish later?
'American' intellectual at its best.
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With public decentralization naturally comes private decentralization as, without public intervention, the bigger and broader the private bungle the more likely the disappearance of the bungler.
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Since when centralization is a matter of public vs private? Ah, yes, since 'americans' have imposed the republic form of government as the unique standard. Before that, there were full private systems of government, that shows that this raving on decentralization is not sustainable.
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Even as recently as the 19th century pollution was a tort, suable for damages and to cease and desist. Then the law morphed to permit what was considered non-anomalous polluting. Ironically, it was paternalistic state oversight that trumped the decentralized and allegedly myopic common-law tradition — where an individual household could “halt progress” by bringing an injunction against the factory upstream that is dumping chemicals into the river. The rights of small property owners were set aside in the quest for industrial growth.
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And the Indians right to property? That could have halted 'american' progress by not allowing the small property owners to get not that property as it was handed down by the central government?
Oh, wait, that small property owner is the entity the 'american' middle class love to relate to. They are that small property owner.
Better to think to please them.
Small localized majorities can do just as stupid and myopic things as broad majorities, but their coercion is escapable and weaker, and they can transparently fail and try again.
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Waooo. Big confusion between the end of globalization and centralization. As 'americans' are ending their process of globalizing the world, there indeed is less and less room to evade the dire consequences of 'americanism'.
That is how 'americans' fled their own coercion. They stole an entire continent to seize power and be protected from the dire consequences of 'americanism'.
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I definitely agree that the only conception of the state that makes any sense is the “night watchman” variety, which exists only to enforce the rules of the game rather than trying to pick the winners and losers
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Whoever sets the rules picks the winner.
Whoever enforces the rules pick the winner.
It is blatantly obvious.
But 'americans' cant face reality, they will always prefer fantasy.
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. Those economically in the bottom half are not interested in the rich getting poorer, they want a better life and hope to rise should they want to. And economists can come up with any economic theory that fits them. They can embrace any narrative-with-data that increases their role.
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'Americans' cant face reality. In a no growth environment, the rich man's gains are the poor man' losses. There are no other way.
That is why 'americans' are so desesperately committed to show that no matter what, their economy keeps growing. To avoid facing reality.
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But any proposal that involves using coercion on unwilling citizens should be off the table.
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Unwilling citizens? First, you need to be a citizen, which means that coercion on non citizens is okay. But even better, unwilling.
This 'american' thinker not only wears a belt to keep his pants up but also suspenders.
So gross. Unwilling: in 'american' societies, governments operate with the consent of the governed. And in countries like the US, citizens have guns to prevent coercion.
It gives that there are no unwilling citizens in the US.
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this idea of spontaneous order — whereby order naturally emerges from bottom-up individual interactions when things are left alone rather than from top-down control
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No kidding. A spontaneous order. Whatever it takes to please the 'american' middle class.
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counter to naïve conservatism, nature is not conservative, it destroys and creates species every day, but it does so in a certain pattern: Its destruction has the effect of isolating the system from large-scale harm. It does not try to preserve the past; it only tries to preserve the system.
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Naive conservatism? What about ascribing determinism to nature? Who keeps down that? Ah, yes, at least that 'american' thinker.
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So a no growth environment implies a zero sum game? I never heard it put quite that way. I will have to think on that, but initially it seems reasonable and could provide a view with insight.
Observations confirm that this corresponds with the situation as it is.
If more poors are needed to be farmed in order to maintain the illusion, the solution would be for some middle classes to be thrown under the bus by other middle classes, creating a new crop of poors to be farmed.
Not good news for those new poors, but hey, the king wills it.
'Americans', they love to depict themselves as defenders of the western civilization.
Unsurprisingly though, when one read the philosophers 'americans' love to introduce themselves as heirs, 'americans' engage in everything those philosophers (who never depicted themselves as westerners by the way), despized and advocated against.
'Americans' come up the whole set of fallacies those guys in ancient times spent their life debunking. They wallow into them.
Having skin in the game should mean a better judgement? What a stupid thought.
As usual, though, with 'americans', they line up everything and anything. Polluters have skin in the game. For them, as it is for every 'american',it is all about getting enough from the game to protect themselves from the bad consequences.
While I agree with a few of your points, I take issue with your assertion that the negative side of human nature is an "American" phenomenon.
Or that some opinions are the complete picture of American values.
(Most Americans are sick of being the "defenders of western civilization")
There are opposite extremes between far left Communist collectivism and far right Fascist social Darwinism.
For those on either end, the rest looks like the other exteme, this is a problem for the majority who fall in the middle and want neither extreme.
I agree with your thoughts on the perspectives of self interest (polluters say pollution is harmless, bankers do "Gods work", Multinationals say outsourcing is good for the economy...etc), which is strong reason to rethink the move toward self regulation of the last decade and push for as much transparency as possible.
It's also the strongest argument for getting money out of politics....those with the most money will control rule of law according to their own self interest.
I am increasingly convinced that Sortition and Demarchy are the answer.